Fracking and energy self-sufficiency is the topic of the week at the Becker-Posner blog. Becker’s contribution provides a stream-of-consciousness overview that is consistent with the past fracking discussions here; it touches on fuel source competition, the quest for self-sufficiency, the environmental impact of fracking, and the likely effects of fuel export regulation. I’m disturbed by seeing the spectre of fuel export regulations rise again, and Becker correctly points out that at least in oil, as long as the world price is higher than the US domestic price, export regulations will have no impact. And with natural gas inventories so high that natural gas prices are falling toward zero, why harm US natural gas companies by restricting their ability to export to countries with higher prices when we have a surfeit?
Becker’s ultimate focus is how fracking contributes to energy self-sufficiency in the US: “Fracking has made the US self-sufficient in gas, and it is leading to reduced imports of oil. If this progress continues, before too long US consumption of oil as well as natural gas would not be drastically affected even by an entire breakdown of imports from the Middle East.” This conclusion depends on there being a reasonably high elasticity of substitution between oil and natural gas, but natural gas is not perfectly substitutable for oil in all instances. Take, for example, electricity generation. According to the EIA’s Electric Power Annual for 2010, there are 55,647MW of generation capacity using petroleum for fuel, and 40.2 percent of that capacity is switchable with natural gas (Table 1.8). Total nameplate generation capacity in 2010 was 1,138,638MW (Table 1.2), which means that only 4.89% of generation capacity uses petroleum fuel, and thus that 1.96% of total nameplate capacity is switchable to natural gas. Electricity is not where the oil-natural gas substitutability is. Coal-natural gas is a different story, but neither Becker nor Posner touch on that analysis, which is less relevant to their main question of energy self-sufficiency.